Is The Fed Flashing Recession Sign?

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Includes: RINF
by: Mises Institute

By Mark Thornton

This little known chart (below) is the Fed's attempt to anticipate a recession in the US economy. The reading from last November is only 3.84%, but that is higher than all but 3 months when a recession did not immediately proceed.

Click to enlarge

According to the Fed's website (FRED):

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales.

As you can see by the chart, there were false starts in early 1978 and 1979 prior to the recessions of 1980 and 1981/82. As well as a false start in September of 2005. The experts say you need 3 consecutive months about 20% to have a reliable forecast of a recession. I will keep track as the data come in.

Disclosure: No positions